Pitti Lamination - Rs.68.70

Established in 1983 and promoted by Mr. Sharad Pitti, Pitti Laminations Ltd. (PLL) is primarily engaged in manufacture of electrical steel laminations and stampings which form a critical part in all types of motors, alternators, pump sets and DG sets. It also manufactures die cast rotors, tools, jigs, fixtures and moulds. It supplies not only laminations but also value added sub-assemblies using castings, aluminium, copper etc. On the domestic front, the company has been catering to some of the biggest and best names in the industry which include Siemens, Areva T&D, Toyo, Denki Power Systems (TDPS), Crompton Greaves, ABB, BHEL, Newage Electrical India, Bharat Bijlee, Kirloskars, Suzlon etc. On the other hand exports contribute more than 40% of its revenue with GE (USA) being one of its major customers.

PLL’s manufacturing facilities are located at Nandigaon village in Andhra Pradesh. Last year, the company completed its Phase II expansion cum modernization plan taking the total installed capacity to 25000 MTPA from 10000 MTPA earlier and started commercial operation in September 2006. For FY07 it is expected to record sales for 15000 MTPA whereas the full impact of expansion will be seen only in FY08. To leverage its considerable expertise and competitiveness and move up the value chain, the company is implementing certain forward integration measures and activities related to laminations. It is outsourcing the fabricated and casted stator bodies and also outsourcing the machining. But now under its Phase III expansion, it is putting up a project for fabrication of steel stator bodies, machining of stator bodies and dropping of assembled stator core into the stator body. These proposed activities are quite complex and demand a high degree of precision. But eventually, it will result in value addition and significant improvement in margins. These integrations will basically cater to GE (USA) and other big domestic customers. The total investment for this Phase III expansion is around Rs.40 cr. and is expected to commence operation by mid 2007 although it has already started the ‘core dropping’ operations. Interestingly, the company has obtained approval to diversify into power generation by way of wind energy, solar energy, thermal energy, hydro energy, bio energy or any other form or source of energy.

To fund the expansion, it has raised around Rs.14.40 cr. through a preferential allotment of around 12 lakh equity shares at Rs.120 per share. The balance is being met through debt and internal accruals. For FY07, it can report sales of Rs.145 cr. with net profit of Rs.10 cr., which may shoot up to Rs.200 cr. and Rs.13 cr. respectively in FY08 on a conservative basis. This translates into an EPS of Rs.11 and Rs.14 respectively. With a 52-week high/low as Rs.130/59, this scrip is available extremely cheap at the current market cap of Rs.65 cr. Investors are strongly recommended to buy with a price target of Rs.110 (60% return) in 12 months.

Kavveri Telecom - Rs.54.45

Established in 1991, Kavveri Telecom Products Ltd. (KTPL) is primarily engaged in the manufacture of Radio Frequency (RF) products and Antennas for telecom, defence and space applications in India and abroad. In fact, it is the largest domestic manufacturer with a capacity to make over 200,000 high quality Antennas and 10,000 RF products per month. Besides it provides total turnkey solutions for coverage and capacity enhancement requirements for GSM & CDMA carriers in India. It offers solutions like Site/RF Survey, RF planning, designing & implementation, repeater based GSM & CDMA indoor as well as outdoor coverage solution and Microcell based indoor coverage solutions. It also manufactures solar modules & solar systems for various applications. Its customers comprise leading wireless equipment manufacturers like BEL, ITI, Motorola, Alcatel, Ericsson, Nokia, Siemens, ZTE, Worldspace etc. and GSM & CDMA carriers like Reliance, Tate Teleservices, Airtel, Hutch, Idea, Spice, Aircel, MTNL, BSNL etc. It was also chosen as a sole supplier to BEL for its requirement of solar modules.

KTPL has three well-equipped production plants in Bangalore, which produces diverse range of products including antennas, RF components (filters, combiners, splitters, couplers etc), cables & connectors, repeaters, fixed cellular terminals and solar products. It has forged strategic alliances with various industry leaders across the globe including Dekolink Wireless (Israel), Coiler Corp (Taiwan), Tatung (Taiwan), King Signals Corp (China), HFR Inc (South Korea) etc. Importantly, all the products manufactured are designed and developed by its in-house R&D center. Presently, it has two wholly-owned subsidiaries namely Eaicom India Pvt. Ltd., Mumbai and Kavveri Technologies Inc., Canada. To strengthen its position in the lucrative North American market, it acquired the TIL-TEK Antenna Division of Wi-Lan Inc., Canada, which manufacture high-quality antenna products for base stations of wireless telecom companies for US $2.5 mn. A few days back, it also acquired another Canadian company called DCI Digital Communications, which specializes in Radio Frequency Interference (RFI) products. Meanwhile, it has bagged about Rs.40 cr. order from Hutchison Essar Ltd. for In-Building Solutions (IBS) and for supply of its products for Base Stations. It has also reportedly bagged a Rs.20 cr. order from Idea.

Although the company is a dominant player in the telecom space, it has increased its share from the defence and space business too. For defence, its R & D division has recently developed GPS antenna for airborne applications, cylindrical beam switching antenna for tactical operations, vehicle mounted VHF & UHF sleeve monopole antennas etc. Moreover, the company is working on innovative designs & development of channelisers, digital instantaneous frequency measurement receivers, specialised filters and radomes, wideband Antennas for early warning system, power amplifiers and LNAs. Importantly, the company has already designed and developed various RF products and antennas for Wi-max and 3G technology that has huge potential. For the March’07 quarter, it reported mind-blowing numbers and ended FY07 with sales of Rs.50 cr. against Rs.35 cr. last and with net profit of Rs.5.95 cr. compared to Rs.2.65 cr. last year.
This translates into standalone EPS of Rs.6 on its equity of Rs.9.80 cr. For FY08, it may clock a total revenue of Rs.100 cr. with profit of Rs.9.50 cr. i.e. EPS of Rs.10. Even though the promoter holding is only 15%, investors are strongly recommended to buy at current levels as the share price can double in 12 months.

STOCK WATCH

As forecast, Bilpower Ltd. (Code: 531590) (Rs.178.80) came out with a very encouraging set of numbers for the March’07 quarter. Its sales increased by 90% to Rs.78.50 cr. whereas PBT jumped up 130% to Rs.7.75 cr. For the full year FY07, sales almost doubled to Rs.245 cr. whereas net profit grew by 65% to Rs.18 cr. due to the higher tax provisioning of Rs.6 cr. This works out to an EPS of Rs.20 on its equity of Rs.9 cr. After taking over Tarapur Transformers, it is moving forward by merging SunTranstamp, a power ancillary equipment company with itself. To fund further acquisitions, it plans to raise around Rs.100 cr. through the FCCB/GDR route in future, which will lead to a re-rating of the company. For FY08, the company is estimated to clock a turnover of Rs.325 cr. and PAT of Rs.23 cr. i.e. EPS of Rs.26 on its current equity of Rs.9 cr. Hence at CMP, the company is discounted by 7 times only against its FY08 earnings and the scrip has the potential to cross Rs.300 in the medium-term.

Micro Technologies Ltd. (Code: 532494) (Rs.240.40) is currently one the most poorly discounted IT scrip on the bourses. In spite of being a niche player and having an unique product portfolio, its share is available at a P/E ratio of merely 6 times its estimated FY08 earning. For the March’07 quarter, it reported 55% rise in sales of Rs.30 cr. and net profit increased by 45% to Rs.9.50 cr., leading to a quarterly EPS of Rs.9. For the full year ending 31st March 2007, its sales as well as profit grew by 80% to Rs.106 cr. and Rs.32 cr. respectively. This translates into EPS of Rs.30 on its equity of Rs.10.50 cr. The management has very aggressive plans for the future and company is expected to grow at CAGR of more than 50% over the next few years. It may end FY08 with a topline of more than Rs.150 cr. with a bottomline of Rs.42 cr. i.e. EPS of Rs.40 on its current equity. With FIIs holding 13% stake and domestic mutual funds holding 6% stake, the scrip has the potential to double in a year’s time.

Jupiter Biosciences Ltd. (Code: 524826) (Rs.161.55) has surprised the market with substantial jump in sales for the March’07 quarter. It registered a record high sale of Rs.38 cr. up 65% compared to last year and net profit rose by 40% to Rs.8.70 cr. For FY07 its sales increased by 30% to Rs.104 cr. and the profit increased by 50% to Rs.25 cr. This leads to an EPS of Rs.26 on its diluted equity of Rs.9.86 cr. The promoters have already converted their 10 lakh warrants into equity shares in March 2007 whereas the balance Rs.17.50 lakh warrants have been converted at Rs.146 in April 2007. Hence, its equity stands at Rs.11.61 cr. The company is further raising Rs.100 cr. through QIP placement and has entered into strategic business alliance with Ranbaxy on peptide pharmaceuticals for the global market. As per the contract, Ranbaxy is taking 14.90% stake, which will further expand its equity. These all are very positive developments for the company and it is estimated to end FY08 with total revenue of Rs.180-200 cr. and profit of Rs.42-45 cr. Scrip is bound to hit a new high soon

After couple of not so encouraging quarters, Ador Fontech Ltd. (Code: 530431) (Rs.87.60) has declared satisfactory result for the March’07 quarter. Both sales and profit improved by 20% to Rs.27 cr. and Rs.2.50 cr. respectively Interestingly, it reported an OPM of 15% compared to 9% in the preceding quarter. However, for the full year sales and net profit increased by 15% to Rs.80 cr. and Rs.5 cr. respectively thereby registering an EPS of Rs.15 on its tiny equity of Rs.3.50 cr. The management has maintained the dividend payout ratio of more than 30% and declared a whopping Rs.5 as dividend for FY07. At CMP, the dividend yield itself works out to more than 6%. Although the merger with Ador Welding is not on the cards but the management may merge both the companies in future for operational synergies. This will trigger the share price of Ador Fontech

Recently, Uttam Galva (Code: 513216) (Rs.33.65) announced a good set of numbers for the March’07 quarter. It doubled its net sales to an all time high figure of Rs.840 cr. but net profit increased marginally by 10% due to lower operating margin and higher interest cost. However, it ended FY07 on a buoyant note with 45% rise in sales to Rs.2567 cr. and 35% gain in net profit to Rs.100 cr. As the company raised about Rs.85 cr. in March 2007 through its GDR issue at Rs.40 per share, its equity got diluted to Rs.105.30 cr. Hence its EPS works out Rs.9.50 for full year. Besides, the company had earlier raised around Rs.200 cr. through FCCB route, which is yet to be converted into equity shares. Although the conversion price is Rs.64.50, it is expected to get revised to around Rs.44-48. On the back of aggressive expansion, the company is estimated to clock turnover of Rs.3750 cr. and net profit of Rs.150 cr. for FY08. This means an EPS of Rs.10 on its estimated fully-diluted equity of Rs.150 cr. At CMP its a strong buy as the scrip can easily appreciate 50% in 12 months.